Economic Growth of China and the UK Between 1997 and 2007
The UK and China both experienced a period of steady economic growth, marked by an increase in gross domestic product, purchasing power parity, and decrease in unemployment and an increase in production within the countries. This growth was triggered by various factors and the result of the growth was an increase in financial stability within the two countries. Prior to this period, they had experienced sporadic growth but this period was characterised by steady economic growth.
The economy of the People’s Republic of China has been one of the most vibrant in the world during this period. China has managed to maintain a steady economic growth, in the range of ten percent, throughout all this period. The economic growth for this period peaked in 1997, when the country recorded a 13.1 % growth in gross domestic product, a trend that continued up to today, currently making the country be the world second largest economy after the United States, bypassing Japan in the year 2010.
Many factors triggered this economic growth in this particular period. Although the Chinese economy had been growing steadily prior to this period, the growth had been sometimes sporadic. Various government incentives and policies were made that significantly contributed to the steady growth. Being the world’s most populous nation, the country had an ample supply of cheap labour, which at times served to its undoing sue to high unemployment. This labour was one of the crucial factors that propelled industrial growth, propelled by a number of legislations (Dwer 68).
Foreign investments pumped billions of dollars into the Chinese economy. The foreign companies were attracted not only by the vast market available, but also by the adequate supply of cheap labour. The government also initiated reforms that allowed private individuals to own companies, opening an avenue for private entrepreneurs to venture into powerful business. This turned out to be a leading source of revenue through remittance from Chinese companies and increase in exports. The state owned enterprises were wholly or partly privatized, improving efficiency, and increasing production. There was also a change in legislation, which was aimed at scrapping the old communist practices and encourages liberalism. These and many other factors laid the foundations for the economy of China to grow and flourish.
The UK economy recorded a steady economic growth that averaged at 2.6 % for the period between 1992 and 20077. Several key factors promoted this, and the result was impressive. In the period between 1997 and 2007, the unemployment decreased steadily while the gross domestic product increased. One of the main causes of the sustained growth was the vibrant growth in the industrial sector, rejuvenated after the recession in the early 09’s. The interest rate and inflation rates were the lowest in Europe, making more cash available for investment.
During this period, the UK substantially benefitted from the expanded market in European Union, which provided a vast market as well as providing cheap imports for the UK economy. Additionally, the previous reforms, which had been put into place after the recession in the early 90’s, were bearing fruits. All sectors of the economy were flourishing steadily, although not as sharply as they had in some times of high economic growth that had been recorded in the seventies.
The benefits of this sustained economic growth have been immense in both countries. The overall benefit is the improved public services to the people in both economies. The steady economic growth that resulted in this period meant more revenues for the government hence more spending in matters related to public services. This was in terms of public facilities such as roads, hospitals, schools and education systems, general infrastructure and other social services. This led to the general improvement of the people’s welfare.
In the UK, unemployment rate declined, resulting from increased job opportunities that were as a direct result of economic growth. Unemployment rate had peaked during the recession in the early 1990, but continued to drop after 1992. The period between 1997 and 2007 recorded increase in employment opportunity as the economy grew. This in itself resulted in various changes like welfare of people, changes in lifestyle and also the investment and purchasing power of the people.
As indicated on the graph, the year 2007 marked one of the lowest unemployment percentages of the total population. Various things that contribute to better lifestyle usually accompany this. The citizens had higher income, meaning that there was better livelihood promoted by the increased earning. In addition, the amount spent in various things like education, health and personal development made the general welfare of people better. Increased spending also led to an increase in the number of manufacturing and production industry, since people had more power to buy.
Various reforms were also implemented or bettered. This includes the health insurance plan, which is one of the most advanced in the world and provides medical cover to the entire citizen. Various policies that were adopted by the government required a substantial amount of money to implement. The UK government participated in two costly wars, in line with it global strategy to counter the increasing threat of terrorism. The wars that were carried out with the United States and other members of NATO included the war in Afghanistan and the ousting of Saddam Hussein in Iraq. The government also had little or no borrowing owing to increased taxes (Seldon 284).
In China, economic growth has resulted in various changes. During this time, China has grown to be the world’s largest importer and exporter, while its economy has surpassed Japan to be the world’s second largest economy. Their industries have developed greatly while the overseas investment has also increased. Today, China happens to be the country with the biggest amount of overseas investment, as well products being sold in almost all the countries.
The economic growth also made the rather withdrawn China to venture into the outside world and align itself for global business. This led to China joining the world trade organisation and opening many doors to its products into the outside world. The increased investment by western companies that were seeking the opportunity to benefit from the cheap labour that is available in China ended up providing China with source of revenues as well as providing millions of Chinese people with employment (Wong and Gungwu 110).
The decrease in unemployment in China because of economic growth during this period is evidenced by the statistics shown below. The unemployment rate sharply decreased, leading to the lowest level ever that was recorded in the year 2007. This decrease in unemployment has multiple effects on the lifestyles and welfare of the people. There was an increase in purchase power, resulting in increase in demand for various things and goods. The Chinese market grew tremendously, and even various things that were never considered a priority to the Chinese people all of a sudden had great demand. An example of this is the bottled water demand; a previously considered luxury item now had a big demand and was considered a multibillion-dollar industry.
The service offered to the people by the Chinese government also improved and increased greatly. Better roads especially in the interior parts of China, and better education facilities evidenced this. In addition, there was increased interaction of the outside world with China, which opened up the country to the western world, and the vice versa. Currently, Chinese culture is and customs are being felt everywhere as evidenced by the presence of a ‘China town’ in various cities of the world (Wu 2008).
Chinese government has turned out to be a leading partner to many countries especially in Africa and Asia. The government has even allocated a fund that will be used to aid development in these countries. This is because of the booming economy that the country has had. These partnerships with other governments have resulted with many Chinese companies being awarded big contracts in various countries. The benefit of this is that wealth is created for the Chinese people since these companies are privately owned.
Basing on the social indicators of development and economic growth, there is all evidence that the social livelihood of people has greatly improved in the period between 1997 and 2007. The welfare of people has been improved by various factors such as lower death rates, increased life expectancy, better education, higher incomes, and improved housing and sanitation facilities. There is no doubt that the economic growth that was experienced in the period from 1997 to 2007 greatly positioned China to be the world’s fastest developing economy, which is also expected to overtake the United States of America as the world’s largest economy by the year 2030. As the citizens were empowered, they were able to venture into new activities that triggered more growth.
The period that followed the year 2007 marked a sharp downturn for the UK economy. In the year 2008, the United Kingdom suddenly entered into a period of recession, which was brought about by the global financial crisis. This resulted in several banks collapsing, while the government moved in to bail out others before they could follow suit also. The global financial crisis that was experienced in 2008 affected almost all the major economies of the world, making them to shrink and many big multinational banks and companies experienced a financial turmoil.
The Republic of China is perhaps the only major economy in the world that did not experience the biting of the financial crisis. Almost all major economies were shrinking, but China experienced a steady economic growth, oblivious of what was happening around the world. This growth has been sustained to date, where China is the second largest economy in the world. The factors that shielded China from this global financial crisis cannot be adequately be analysed, but the fact that China is independent of many of the Western financial policies could possibly have rendered it immune to the recession, just as the other major economies suffered greatly (Youngnian and Sara 120).
The major sectors that were affected by the recession in the United Kingdom include the financial and banking industry, and the manufacturing industries. These form and contribute a substantial amount of input into the economy. Although this was not a UK only affair, reports indicate that the United Kingdom took a little bit longer to emerge from the recession, unlike other countries like the US, France, Germany and Sweden. The industries were a bit slow to pick up as sales had diminished while local consumption had gone down. The graph below shows the economic performance of the United Kingdom in the period after the onset of the recession. It shows the growth in the gross domestic product in the several quarters until the economy emerged from the recession. As I can be seen, the economy emerged from the recession in the third quarter of the year 2009.
For comparison, the following is some data on the gross domestic product for a number of years preceding the recession.
Besides major companies that were greatly affected, the rate of unemployment sharply rose as companies went ahead to lay off staff in a bid to reduce expenses. At the peak of the recession, which was also combined with a rising commodity prices, unemployment stood at 7.6%, the highest ever to be recorded in a long time. The 2008 recession was also marked as the longest recession ever that the United Kingdom has ever experienced in the recent history, having experienced a period of eighteen months of recession. By the end of the recession, the economy had contracted by a whopping 5.9 % of the initial size. This was a major drop.
Since the recession in the year 2008, the United Kingdom government has changed various policies and enforced new policies that are meant to shield the economy from such cases of global financial meltdown. In the deep of the recession, the Bank of England encouraged the spending and lending of money, in order to bring the economy to normal, but without much success. This was done by reducing the interest rates that it charged on loans, to a record low of 0.5 5, in the hope that this would encourage commercial banks to borrow from the central bank and lend to customers.
The failure of the strategy of reducing the interest rate prompted the Bank of England to result to quantitative easing, whereby the bank was trying to inject money into the economy by increasing the flow of cash through creating more money on its balance sheet. This money would them be used to buy bank’s assets including government bonds. However, the effectiveness of this approach economically cannot be easily verified. The strategy was done as a last effort to encourage spending since even with reduced interest rates, banks were no willing to borrow more from the Bank of England.
To reduce the huge deficits in the budget and to curb the increasing national debt during the recession, the United Kingdom opted to cut on its spending. Various budgets were slashed in order to minimize the amount of money that was too spent by the government. This would include reducing the welfare pension as well as rising the mandatory retirement age. In yet another move, the government announced plans to lay off some five hundred thousand jobs hence reduce the money spent on salaries and wages on its employees. These drastic measures were taken in order to reduce the spending and instead, help to ease the national debt that a further spiralled upwards by the 2008 recession. The plan drew sharp criticism, since it directly affected people and it was seen as an attempt to gamble with people’s lives. In yet another effort, the government announced plans to raise taxes in January in an attempt to raise more money.
The sustainability of these recovery options cannot be fully predicted, but the steps that the government is taking to ensure full recovery may be good but not the best. By looking at how the economy is recovering, it is not easy to tell what trend the economy will take, but only hope for a V-shaped recovery. The following is a graphical representation of the economy’s performance in terms of gross domestic product.
The potential for recovery is high, as it is already happening. However, the sustainability and the ability of the economy to sustain itself amidst future risk will depend on the measures that the government will take. At the moment, the United Kingdom possess some great industrial advantages due to the presence of flourishing manufacturing industries, huge gas reserves, mining and quarrying industries as well as a flourishing service industry (Jenkins et al 87). These can ensure the sustainability of the economy in the near and the far future. However, the short-term strategies that have been adopted like reducing the interest rates may not last for long, since these will be dictated by other factors that are not unique to UK alone.
Currently, sustainable recovery is being hindered by several factors. This includes high spending cuts that the government, which could possibly reduce demand for products and services, although the weaker pound is helping the exporters for a short time. Something that raises a big risk is the current demographic structure, whereby a good number of people are bound to leave the job market, creating a labour deficit and increasing the number of dependants. This will be extremely expensive for the government, and may erode the gains made so far. This is similar to what Japan experienced twenty years ago, and the rate of their economic growth quickly slowed. If these issues are carefully looked at and a counter measure applied in order to reduce their impact, the UK can easily manage to sustain the current recovery for a long period.
Dwyer, Wayne. ‘CURRENT DEVELOPMENTS IN THE CHINESE ECONOMY.’ Ecodate. 22.1 (2008):1
Jenkins, Jamie and Leaker, Debra. ‘The labour market across the UK in the current recession.’ Economic & Labour Market Review. 4.1 (2010): 36-39
Seldon, Anthony. Blair’s Britain, 1997-2007. Cambridge: Cambridge University Press, 2009.
Wong, John & Gungwu, Wang. Interpreting China’s Development. Beijing: World Scientific, 2007.
Wu, Renhong. ‘Which way for the Chinese economy?’ World & I. 13.10 (2008):40-48
Youngnian, Zheng and Sara, Tong. China and the Global Economic Crisis. Beijing: World Scientific, 2010.
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